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Facebook Soars 25 Percent On Impressive Earnings Report

Facebook Inc (FB) ’s stock absolutely soared following the release of their second quarter earnings report, skyrocketing over 25 percent in early trading Thursday. Though some analysts had speculated that Facebook had begun to successfully monetize their burgeoning mobile advertising business, few expected the kind of earnings Facebook released.

The social media behemoth beat revenue expectations by 10.5 percent, and topped revenues from same quarter last year by 35 percent. The largest factor, by far, was the emergence of Facebook’s mobile advertising. Mobile advertising represented 41 percent of Facebook’s $1.6 billion in advertising revenue.

Two things stand out and bode well for Facebook’s future. One, active monthly users increased to 1.1 billion, signaling that Facebook’s user base is not done growing. Two, and of more pertinent interest to investors, Facebook has seemed to have successfully monetized the mobile users of its site.

While mobile users accounted for over half of the total, the first quarter only attributed 31 percent of advertising revenue to mobile, and the same quarter a year ago almost none. As users increasingly access Facebook via their smartphones and/or tablets, fully monetizing mobile was seen as the key to energizing company revenue.

The inability to monetize mobile users had been a major factor in Facebook’s famously disappointing IPO in May 2012. Facebook had their IPO at $38 a share, and saw their stock drop immediately and continue declining, to as low as $17.55 in late August 2012.

The stock has climbed above $30 a share for the first time since January, and numbers look good going forward. It seems CEO Mark Zuckerberg’s assurances that they were getting users to become more engaged with the site, and thus spend longer amounts of time on it, are panning out.

In a conference call with investors, Zuckerberg pointed out that 70 percent, or 699 million of their “monthly users,” or the users who do more than just maintain a profile, were using the site daily.

Zuckerberg continued: “People on average are spending more time on Facebook than ever. Facebook share of time spent in the U.S. is steady or increasing and we believe elsewhere as as well. Real identity is the reason.”

This last statement is a reference to analysts who speculated that up to 10 percent of profiles on the site were fake or duplicates, and thus of zero use to advertisers. And it’s also a reference to Zuckerberg’s personal interest in, as he puts it, making the world “more transparent.”

Part of this transparency that Zuckerberg seeks is connecting the users that already use the site. In the same conference call, Zuckerberg stated Facebook’s mission moving forward: “connect everyone, understanding the world and helping build knowledge economy.”

In June Zuckerberg announced the introduction of Facebook Graph, which encompasses these ideas of connection, understanding, and building knowledge. As a feature, Facebook Graph makes the reams of data Facebook has on its users (that they have made public) searchable, enabling users to seek one another out based on similar interests. In a sense, it marries social media and search, and while reactions to Facebook Graph have so far been mixed, it indicates that the company is actively searching for their next innovative step in expanding the user experience on Facebook.

The stock is likely to correct as investors fully digest the good news. But if Facebook can continue to monetize mobile, keep users on the site longer, and continue to attract teenage users (which they targeted with their $1 billion acquisition of Instagram) Facebook’s chances of finally returning to their IPO price look better than ever.

Facebook reported net income of $333 million, or $0.19 a share, versus the $295 million, or $0.12 per share, from the same period a year ago. Revenue for the quarter was $1.81 billion, as compared to $1.184 billion from the previous year. Analysts were expecting a profit of $0.14 per share on revenues of $1.62 billion.

Facebook was up as high as 28 percent to hit $34 Thursday in morning trading.

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